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Apple to launch new low-cost iPhone in 2020 to halt sales decline

Cheaper handset is aimed at retaking market share from Huawei, Samsung

Apple is bringing back a relatively inexpensive iPhone to replace the SE, shown above, so it can better compete in emerging markets. (Source photos by Wataru Ito/Getty Images)

TAIPEI/TOKYO/SEOUL -- With its share of the smartphone market slipping, Apple plans to launch a lower-cost iPhone next spring to win customers in emerging markets and retake ground in China lost to Huawei Technologies and other rivals, sources said.  

The new model would be Apple's first low-cost smartphone since the launch of the iPhone SE in 2016, which started at $399. Though the name and price of the new model hasn't been decided, it is viewed as the latest generation of the iPhone SE. 

The decision to revive the lower cost model comes amid a rough patch for the iPhone. Apple reported its first-ever decline in iPhone shipments for last year, and this summer it lost the title of No. 2 smartphone maker to Huawei. The U.S. company also has suffered two straight quarters of shipment and market share drops this year, according to IDC data. The global smartphone industry overall also faces its third consecutive annual decline in 2019, according to IDC projections.

Blame for the iPhone slump lies in part with the intensifying Washington-Beijing trade war that has weighed on consumer sentiment in China, the Cupertino, Calif., company’s third-largest market.

But blame also rests on Apple's pricing strategy, which saw the iPhone XS Max retail for as much as $1,099 when it was launched. Tim Cook, Apple's chief executive, acknowledged in January that "price is a factor" behind weaker sales in emerging markets. 

To reenergize sales, Apple slashed prices for its flagship iPhones and launched trade-in programs, which accounted for nearly half of its revenue in the first half of the year. Despite these incentives, Apple still lost its position as the world's second largest smartphone maker to  fast-rising Huawei  during the period.

The new, cheaper iPhone could boost sales for Apple next spring, when the life-cycle of new flagship iPhones -- scheduled to be unveiled Sept. 10 -- would naturally begin to slow. The original iPhone SE sold about 30 million units in 2016  and another 10 million between 2017 and 2018, according to Yuanta Investment Consulting. 

“The cheaper iPhone SE could serve as a sales momentum kicker the first half next year, if the new premium iPhones do not perform well in the coming months,” Jeff Pu, a veteran tech analyst at GF Securities, told the Nikkei Asian Review. 

Apple ramped up mass production of the latest flagship iPhones in the final two weeks of August, and the manufacturing process was smooth since there were few challenging new features this year, two people familiar with the plan said. 

However, the initial production run of this year’s new iPhones is around 10% less than the 80-85 million units during the same period in 2018  --  a conservative approach that reflects the uncertain global economic outlook, two other people said. But Apple could increase orders anytime if demand turned out to be stronger, they added.

The size of the new model will be similar to the 4.7-inch iPhone 8 that was introduced in 2017, three sources said. The model will share most of the same components with the flagship iPhones this year, and it will feature the lower-cost liquid crystal display that will help Apple achieve the lower starting price-tag, although the final pricing for the model is not yet settled, the people said. 

Apple plans to unveil at least two flagship iPhones next year featuring premium, organic light-emitting diode (OLED) displays. It is even considering releasing all three of next year's models with OLED  if China’s leading display maker, BOE Technology, passes the U.S. company’s certification to supply the screens, the Nikkei Asian Review reported earlier.

OLED displays have become popular in recent years, since they are flexible and offer better color contrast. The cheaper iPhone next spring could be Apple’s only new handset that still uses LCD displays. The financially-troubled Japan Display would be its major supplier, while LG Display will also provide LCD for this model, the people said.

The cheaper iPhone is designed to help Apple gain ground in emerging markets, where consumers are more price sensitive. It could also counter mid-to-high range smartphone models from Samsung Electronics, Huawei and Oppo -- as well as challenge  Google, which became the No. 5 smartphone maker in the U.S. during the June quarter thanks to its $399 Pixel 3A.

Analysts note that Apple is also lagging behind some competitors in launching a 5G phone.

“Apple is facing quite a tough year in terms of smartphone competition,” said Eddie Han, senior industry analyst at Market Intelligence & Consulting Institute. While most of its rivals already launched 5G-compatible smartphones to attract consumers amid an industrywide slowdown, Apple hasn't unveiled a 5G handset this year, the analyst said. 

“A new iPhone SE could at least help Apple secure its user base,” Han added. 

Apple did not respond to Nikkei Asian Review’s request for comments. 

JDI and LGD declined to comment.

Nikkei staff writer Kensaku Ihara in Taipei contributed to this report.

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